Has China become "unavoidable" after being once labelled "uninvestable"?
JPMorgan's Gabriela Santos thinks so. But Catherine Yeung at Fidelity International goes one step further.
As an economy, China has been through a significant amount of upheaval in the last three years. At one point, Chinese tech and internet stocks were labelled "uninvestable" by JPMorgan analysts. The note caused shockwaves in the financial press and it even cost the firm its position as a lead underwriter for Hong Kong-based tech firm Kingsoft Cloud (which is incidentally up 38% over the past year).
Fast forward one year since that note was published and that same team now believe China is not just investable but "unavoidable".
But was it ever uninvestable? Catherine Yeung of Fidelity International argues no.
"I wouldn't agree that it was ever uninvestable ... For us, it's still very, very investable."
In this edition of Expert Insights, we go through the key macro factors affecting investing in China today. We'll also examine how China's investment opportunity sits among the rest of its peers across Asia.
EDITED TRANSCRIPT
LW: Has China become "unavoidable" after being labelled "uninvestable"?
Yeung: I wouldn't agree that it was ever uninvestable. What we did see is post the People's Congress at the end of last year, it was completely negative sentiment. So the flows on that initial trading day, post the weekend, you saw a massive sell down especially in the Hong Kong market. And at the time, we thought potentially maybe one-third of international investors won't go back to China. The view was that the goalpost kept on changing. It was very opaque. You couldn't really identify both economic signals as well as fundamental signals of companies.
So it was complete bearishness. In fact, probably like India in 2012 in terms of no one wanted to go near it, the US during the global financial crisis. So valuations in China were trading at multiples, which basically was saying doomsday. And then once the Chinese government announced a very quick pivot in terms of the reopening, you saw almost this mass hysteria coming back into the market.
So these extreme movements, again, very much driven by sentiment. But what's key when it comes to China is the fundamentals of both corporates or many corporates, as well as the structural drivers in China, remain in place. So for us, still very, very investable.
LW: Is China's 5% growth target realistic?
Yeung: China is one of the only countries in the world that actually sets a target for GDP. And whether it comes in at five or 4.8 or 5.2, for them, it's about the quality of that growth versus the quantity.
China doesn't need to grow anymore at 7%, 8%, or sort of GDP numbers are coming out of other countries in Asia, such as India.
And so in order for this growth target to be achieved, we really have to ensure that, again, those structural drivers and that the policy cycle is in China's favour. And at this juncture, all things in terms of on paper for China, look really, really attractive.
So it's likely that they will come in at that level. And just post the National People's Congress, which wound up on the 13th of March, policy wise, there's this messaging or rhetoric from the senior government officials about, it's all about economic growth.
LW: Why is China's central bank policy so accommodative when its peers are doing the opposite?
Yeung: It's quite fascinating when you think about it because China, maybe a little bit like Japan, is at the other end of the policy spectrum versus all other major economies. So really it's a function of where China was. China essentially has gone through their recession and now are in a period of reflation. We just saw recently a cut to the reserve requirement ratio. The PBOC, or the People's Bank of China, just did a 25 basis point cut and it injected liquidity into the banking system of around 500 billion RMB, or in Aussie dollars, it's about 100 billion.
And it's again, an indication of that policy easing support that the central bank's willing to put in place. So you could say, "Well, why aren't they doing more? Why are they just kind of tweaking, whether it comes to the reserve requirement ratio? Or why don't they just cut interest rates like the RBA would?"
China's problems aren't about interest rates. There's been some issues regarding the property cycle and the property developers. But it's the trust in property developers not about mortgage repayments. And if the PBOC were to cut rates at a time when you've got the Federal Reserve, the ECB aggressively hiring or increasing or tightening rates, then you have a widening interest rate differential, which would have both a flows perspective as well as potentially a currency impact on China.
LW: How do you see China as an investment opportunity compared to the rest of Asia?
Yeung: When you look at where we're at, again, the policy cycle, and again, the PBOC has been very cautious in terms of both how they've eased mandatory policy, as well as fiscally. So they weren't doing policy stimulus like we saw in 2008. They've been just closely ensuring that economic growth, if certain sectors like the property sector were struggling, just implementing policies to be supportive. But from even evaluations' perspective, it's looking really, really attractive. And the company earnings are coming through. It looks like they've bottomed after the recession that we did see.
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Fidelity Global Emerging Markets Fund (Managed Fund) (FEMX)
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This is an archived profile. Hans was a senior editor at Livewire Markets from April 2022 to February 2025.
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This is an archived profile. Hans was a senior editor at Livewire Markets from April 2022 to February 2025.
Expertise
This is an archived profile. Hans was a senior editor at Livewire Markets from April 2022 to February 2025.
Expertise
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